Depending on how much the dividend paid is relative to the share price, your return on investment may be higher or lower day-to-day. For example, if the share price increases by the dividend that is actually paid stays the same, the dividend yield drops slightly.

Usually, companies that pay dividends will continue to pay dividends. If they cut paying, sell your stock. It is a very unhealthy sign if companies can no longer share profits with the owners. So if a company continues to pay dividends regardless of the stock price, you’re in good shape. Here’s why:

1) Dividend paying stocks historically outperform non-dividend paying stocks.

How do you know? Well dividends are a percentage of the net income that a company earns over the course of the year. If they are earning enough income to pay a dividend to owners and still have money left to keep for operations, it’s a very good thing.

2) The dividend yield + stock price appreciation.

So a dividend yield of 2.90% in comparison to a savings account of 3.30%, over the long run, can make a big difference. Why would you park your money in stock, considering the risk involved? Then again, being that you are an owner of a company, the value of your investment can increase from the stock price increasing due to good company performance. All this while still getting paid a dividend. Historical U.S. stock market return is anywhere from 8-9%. At this rate of return, invest however much you want to a year and see the amount of money you can potentially have 40 years from now.

3) You’re in college. The greater the return on investment now, the richer you are later.

Try our budgeting worksheet for absolutely free. On the “Savings” tab, you’ll find that you can play around with interest rates. Switch them up a little bit and see what a difference it makes in 40 years. If you want to retire a millionaire, now is the time to start.

Because dividend-paying stocks outperform non-dividend paying stocks, the chances of stock price appreciation increase. If stock price appreciation increases, then the

4) declared dividend will probably increase.

Wouldn’t it be nice if you went from earning $.19/sh to $.26 cents a share?

Say you own 40 shares, and dividends are paid quarterly. That’s an extra $11.2 a year for doing… well, nothing (click here to learn how I calculated this).

5) It’s free money!

Ever want to find a tree that grows money?

You’ve found it.

Check out our investing section for more on stocks… and remember…

Shoot me or Zack an e-mail with anything you can think of. We’re here for you!

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